The first barrel of ethane from the Bakken field will go to Nova Chemicals' Joffre, Alberta facility to be value added and converted into polyethylene next year, which explains why CEO Randy Woelfel described himself at an industry event in Dubai on Thursday as very excited by all that is happening currently in the North American shale oil and gas sector.
Talking at the seventh Gulf Petrochemicals and Chemical Association forum, Woelfel pointed out that the company was well placed to exploit all that the developing shale oil and gas sector has to offer as its 2.8 million mt/year Joffre facility, which had the biggest ethylene production capacity when it was built in 2000, is close to the Bakken and Montney shale plays as well as the oil sands.
Its other plant at Sarnia, Ontario, the 1.5 billion lb/year (680,000 mt/year) Corunna cracker, is near the Marcellus and Utica shale plays in Pennsylvania. In its NOVA 2020 strategic plan released a little over a year ago, Nova Chemicals, a wholly owned subsidiary of Abu Dhabi's International Petroleum Investment Company, had said it planned to take advantage of emerging feedstock supply from Marcellus and expand its ethylene and polyethylene capacities.
At the GPCA forum on Thursday, Woelfel credited the availability of water, knowledge and already existing infrastructure with offering North America a big advantage in developing its shale gas reserves. The new gas will go to export -- there are 15 LNG export projects in some stage of discussion -- power generation and industrial demand, but a major chunk will go into petrochemical production, he said.
Looking at conventional feedstocks, he pointed out that traditionally the price of oil to gas has fluctuated in the 6:1 energy parity ratio, adding that in the second quarter of this year, in a dramatic shift, the oil to gas ratio spiked to 50:1. "Even as we relaxed back to something that seems a bit more steady state with gas at $3.50/Mcf and crude oil at $85/barrel for WTI, we are still at 25, well about fuel parity," he said.
Incrementally, as gas becomes easier to access and crude oil stays expensive, in North America "the playing field will tilt and stay tilted toward gas for years to come," he added.
In 2004, in terms of any petrochemical feedstock, North America lacked competitiveness, Woelfel pointed out. In 2008, the situation was the same but in 2012, it is a different ballgame, he added.
Even as Saudi Arabia remains the most profitable in petrochemical production, retaining its cost advantage, the US Gulf Coast and Canada are closing the gap, Woelfel said. The US Gulf Coast especially has rapidly forged ahead to optimize the amount of pure ethane it can use as feedstock and "today the industry is sitting on something in excess of 70% of pure ethane with essentially the balance of the industry running propane and butane," he added.
Last month, PwC said in a report that shale gas could enable "US manufacturers to lower their raw materials and energy costs as much as $11.6 billion annually by 2025."
Considering how much longer other regions will take to reach the stage the North American shale gas sector is at today in terms of development and momentum, it looks set to retain its lead position, Woelfel said at the second day of GPCA's annual forum. "So ethylene producers are naturally very excited. We have gone from being a sunset industry to suddenly a sunrise business." he added.
The last world-scale polyethylene plant in North America was built by Nova and that was in 2000. All the announcements of new projects and expansions means a 40% increase in PE production just by the end of this decade, Woelfel said. Based on industry reports, PwC estimated in its October report that the US chemicals industry has invested $15 billion in ethylene production, increasing capacity by 33%.
While a lot of the output will be consumed domestically, which is expected to grow tracking industrial growth at 2-4%, the rest will be coming to world markets, he warned, asking the industry to fasten its seat belts as North America certainly thinks it can compete against Asia and the Middle East.
REGULATION NOT A SHOW-STOPPER
Shale gas does lead to strong responses from regulators and the community, Woelfel said. Well safety, water usage, land destruction are all hot topics, but he sees increasing knowledge and communication as making people become more comfortable with the sector. And the money they get in the mailbox is a help, he said, adding that on balance "the regulatory environment is not a show-stopper."
As shale gas turns traditional flow paths on its head, there is a lot of investment being made in infrastructure. He pointed out that the advantage the US has of a well developed, highly responsive and profit-oriented capital market gives it an edge.
Talking of a brave new world, Woelfel said that if he was the one giving advice to a young Dustin Hoffman in the 1967 Oscar-winning film The Graduate, he would whisper "shale" instead of "plastics" as the business to be in.
Summing up the advantages of the shale gas boom, Woelfel said: "There is a lot of good news for a lot of industries, but no better news for one industry than for petrochemicals."
